Question

At December 31, DePaul Corporation had a $34 million balance in its deferred tax asset account and a $180 million balance in its deferred tax liability account.

The balances were due to the following cumulative temporary differences:
a. Estimated warranty expense, $25 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty).
b. Depreciation expense, $300 million: straight-line in the income statement; MACRS on the tax return.
c. Income from installment sales of properties, $150 million: income recorded in the year of the sale; taxable when received equally over the next five years.
d. Rent revenue collected in advance, $60 million; taxable in the year collected; recorded as income when the performance obligation is satisfied in the following year.
Required:
1. Assuming DePaul will show a single noncurrent net amount in its December 31 balance sheet, indicate that amount and whether it is a net deferred tax asset or liability. The tax rate is 40%.
2. Determine the deferred tax amounts to be reported in the December 31 balance sheet. The tax rate is 40%. (Enter your answers in millions.)

Answer 1

2.)

deferred tax liability = $180million

Deffered tax asset = $34million

Net Deffered tax liability = $146million

Step-by-step explanation:

Estimated warranty expense, $25 million: expense recorded in the year of the sale; tax-deductible when paid (one-year warranty).

b. Depreciation expense, $300 million: straight-line in the income statement; MACRS on the tax return.

c. Income from installment sales of properties, $150 million: income recorded in the year of the sale; taxable when received equally over the next five years.

d. Rent revenue collected in advance, $60 million; taxable in the year collected; recorded as income when the performance obligation is satisfied in the following year.

Required:

1. Assuming DePaul will show a single noncurrent net amount in its December 31 balance sheet, indicate that amount and whether it is a net deferred tax asset or liability. The tax rate is 40%.

2. Determine the deferred tax amounts to be reported in the December 31 balance sheet. The tax rate is 40%. (Enter your answers in millions.)

Kindly see attached picture for detailed explanation